Page last updated at 15:55 GMT, Thursday, 15 January 2009

How will the Equitable scheme work?

The government has announced the setting up of a scheme to compensate some of the one million people who lost money with the life assurance company, Equitable Life.

Treasury Minister Yvette Cooper apologised to the victims and unveiled the outline of a plan to compensate some of the insurers' "disproportionately affected" policyholders.

How will the compensation scheme work?

At the moment there are few details available.

A former Lord Justice of the Court of Appeal Sir John Chadwick is to head the scheme. He will advise the government on how it should work and which policyholders should receive payments.

But it is clear that losses caused by the falling value of the stockmarket and those that the government determines could not have been prevented by better regulation, won't be covered.

So compensation will only cover losses attributed to maladministration that should have been picked up by regulators.

Who will receive compensation?

It is unlikely that all policyholders will get a payment as Treasury minister Yvette Cooper said the government scheme would only help those who have been "disproportionately affected" by the near-collapse of Equitable Life.

It is important to set up a scheme which can pay out as swiftly as possible taking account of the difficult practical considerations involved
Treasury Minister Yvette Cooper

Ms Cooper said the government would not implement the larger-scale compensation recommended by the Parliamentary Ombudsman in a report last summer.

"We want to focus on those who have been hardest hit," she said.

She hinted that policyholders might face some sort of means testing in an answer to MPs questioning how people's eligibility for compensation would be calculated.

"We would expect it to include looking at the extent of somebody's losses, how great the losses were but also perhaps looking at how great they were as a proportion of their income."

Sir John Chadwick will determine which policyholders have suffered the most as a result of maladministration accepted by the government.

According to the Treasury, he will identify the "classes" of policyholder who have suffered the greatest impact.

How much will it cost?

It is impossible to say because the Government does not have yet the detailed information necessary to work who has lost what.

However, total payouts are thought likely to reach hundreds of millions of pounds, in other words, well short of the 5bn called for by policyholders.

Ms Cooper said the payouts will also "take account of the position of the public finances".

When will policyholders receive their money?

As a general principle, the Government has announced that the scheme will pay out "as swiftly as possible taking account of the difficult practical considerations involved".

The Parliamentary Ombudsman recommended that payouts should be within two-and-a-half years of her report - or 2010 - but the government has said this is unlikely.

Sir John has been asked to advise as quickly as possible and to provide interim updates so that the government can get on with setting up the scheme without having to wait for his final conclusions.

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